Large-scale energy storage is often treated as an unambiguous climate solution: batteries and similar technologies capture surplus renewable electricity and release it when needed, smoothing out the intermittency of wind and solar. New research from Erasmus School of Economics complicates that picture. Under realistic market conditions, Olga Kuryatnikova and co-authors show, storage operated for profit can actually increase carbon emissions rather than reduce them.
How does energy trading currently work?
The intuition behind storage is straightforward: absorb clean electricity when there is too much of it, release it later when it is scarce. But storage assets participating in wholesale electricity markets are not typically operated for sustainability reasons, they are operated for profit.
That distinction matters because of how electricity prices are formed. At any given moment, the market price is set by the most expensive generation source still needed to meet demand: generators are dispatched roughly in order of cost, cheapest first. Crucially, cheap does not always mean clean. As Kuryatnikova explains: 'The market price is equal to the price of the most expensive currently used energy source,' and coal has frequently been cheaper than gas, particularly given recent gas price volatility.
Storage can end up polluting
A profit-seeking storage operator will charge when prices are lowest and discharge when they are highest, without regard for which fuel happens to be cheap at the time. Kuryatnikova summarises the resulting risk: 'As long as it is cheaper to buy from something that pollutes more, energy traders will buy that.' If the storage asset later discharges at a moment when a comparatively cleaner source, such as gas, is setting the price, its stored electricity effectively displaces that cleaner power. The result is a trade that is profitable for the operator but adds emissions to the system, the opposite of what storage is assumed to deliver.
The researchers stress that this risk is tied to a particular phase of the energy transition, when the market still contains a substantial mix of flexible, polluting generation, such as coal and gas, operating alongside renewables. In a future system dominated by renewables and storage, this specific mechanism may become less relevant, according to Kuryatnikova.
Preventing it with emission levies
The study identifies a workable safeguard: pricing carbon emissions high enough that the incentive for these polluting trades disappears. The researchers find, however, that the carbon price required is often steeper than levels seen in existing schemes, such as the EU Emissions Trading System.
Additionally, storage still represents a small share of overall market activity, meaning the emissions at stake are correspondingly limited for now. Raising carbon prices carries broader economic and social costs and weighing those costs against a currently modest emissions risk was outside the scope of this study. 'We think mostly about the idea: can this happen?' says Kuryatnikova. 'We don't try to show that this has very negative consequences and you necessarily need to do something about it.'
Advice for policymakers
Even so, the researchers argue the finding deserves attention in policy design. Kuryatnikova's central recommendation is that regulators drafting storage-related legislation account for the possibility that batteries could increase, rather than decrease, emissions, an effect she says has so far gone largely undiscussed. The findings, based on theoretical modelling supported by analysis of Dutch electricity market data from 2019 and 2022, offer a framework regulators could use to evaluate this risk as storage capacity continues to expand.
- Assistant professor
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For more information, please contact Ronald de Groot, Media and Public Relations Officer at Erasmus School of Economics, rdegroot@ese.eur.nl, or +31 6 53 641 846.
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